August 23, 2010 / 3:01 PM / 10 years ago

UPDATE 1-Euro zone consumer confidence improves in August

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BRUSSELS, Aug 23 (Reuters) - Euro zone consumer confidence showed a steady improvement in August, figures from the European Commission showed on Monday, although the longer term prospects for the region’s growth remain uncertain.

The Commission’s flash estimate of consumer optimism in the 16-country currency area rose to -11.7 this month from a revised 14.0 in July (previously reported as 14.1), the data showed. The figure puts the index at a 27-month high.

Across the whole 27 country European Union, sentiment improved to -11.4 from -13.8.

Consumer morale is among a string of recent economic indicators that have pointed to a steady recovery by the euro zone economy from the financial and economic crisis, although expectations are that growth will taper in the second half of the year after a strong showing in the second quarter.

While exports have been strong, the rebound has not filtered through to consumer demand, which will be the driver of any long-term and sustained return to growth for the region.

“Becoming more confident about the economy is one thing. Opening your purse and increasing spending is another,” said ING economist Martin van Vliet.

“With the improvement in consumer sentiment mainly confined to the frugal ‘core’ economies, any strengthening in overall euro zone consumer spending over the coming quarters will likely be modest and insufficient to offset the slowdown in exports resulting from the weakening in global demand.”

The euro zone recorded growth of 1.0 percent in the second quarter from the first — exceeding U.S. growth in the same period — but with the U.S. and Chinese economies both showing signs of slowing down, the prospects for European exports are dimming.

Most euro zone countries are committed to cutting spending and reining in their budget deficits in order to bring finances back into check and avoid a Greek-style debt crisis.

With public sector spending being slashed back, and unemployment stuck at 10 percent — a 12-year high — there is little likelihood of a near-term upturn in consumer spending.

There is also a great deal of divergence among the euro zone’s 16 economies, with Germany, France and the Netherlands showing positive signs, but many others, including Spain, Greece, Portugal and Ireland struggling to overcome recession.

“We suspect that the overall euro zone figure once again masks considerable divergence between member states,” said Van Vliet.

“Ongoing pessimism in the Southern periphery, where aggressive fiscal tightening is squeezing consumers’ wallets, is likely to be offset by improving sentiment in (most of) the “core” Eurozone countries.”

A breakdown of the figures is due to be released next week.

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